Judgment:
V.S. Kotwal, J.
1. Three directors of a company are non-residents two ordi narily residing in the United States of America while one in the p=09 United Kingdom. These directors represent the parent company and in that capacity are on the board of directors of the company in ques tion. They themselves were entitles for the payment of dividend from the company of which they are directors and for not having paid the amount or not separated the said amount due to non-payment they faced prosecution. Ultimately all the requisite amounts of dividend after permission of the Reserve Bank of India have been remitted to them. The complaint is filed after this payment when the default if any was already rectified. The relevant provisions of the Companies Act as also all these features are not properly considered by the learned Magistrate. All these characteristic features are enveloped in this proceeding which make the continuation of the proceeding a sheer waste of public money time and energy and even of the ground of propriety it is desirable to close the chapter at this stage itself.
2. The first petitioner is a public limited company (company) registered under the Companies Act with their registered office located on Lal Bahadur Shastri Marg in Mulund area of the metropolis. Petitioners Nos 2 to 6 are directors of the company. Petitioners Nos 3 and 4 are ordinarily residing in the United States of America while petitioner No 5 ordinarily resides in the United Kingdom and thus they are non- residents. They represent the parent company M/s. Chicago Pneumatic Holdings Limited United Kingdom on the board of directors of the company.
3. As per the balance-sheet of the company as on December 31, 1982 it is disclosed that the company had paid interim dividend of 10% on equity shares in February 1984 and declared the final dividend of 5% on June 27, 1984. Petitioners Nos 3 to 5 were entitled to the said amounts of dividend. However the company had not remitted the said dividend nor warrant in respect thereof has been posted within 42 days from the date of the declaration to the respondent in the capacity as share holders who were entitled to dividend nor had the company within seven days thereafter transferred the total amount of dividend which re mained unpaid or in respect of which no dividend warrant has been posted to a special accout which was to be opened by the company in that behalf in any scheduled bank as prescribed by section 205A(1) of the Companies Act(Act) which is made an offence punishable as pre scribed in subclause (8) of section 205A of the Act.
4. It is on these allegations that the Additional Registrar of Companies Maharashtra filed a private complaint against the company and five of its directors petitioners Nos 1 to 6 respectively being Criminal Case No 1301/RC of 1985 under section 205A(8) for contravention of section 205A(1) of the Companies Act of 1956 in the court of the learned Additional Chief Metropolitan Magistrate Third Court Esplanade Bombay.
5. The process has been issued on the said complaint by the learned Magistrate and the said order is being placed under challenge in this petition invoking the inherent powers of the court under section 482 of Code of Criminal Procedure as also powers of superintendence under article 227 of the Constitution of India.
6. The dominant plank submitted by Shri Vashi learned counsel for the petitioner in assailing the impugned order relates to the construction of provisions of section 205A as also section 207 of the Act. Accord ing to him since there was an obstacle or prohibition by the operation of law to paying the money as under the provisions of the Foreign Exchange Regulation Act the permission of the Reserve Bank of India is necessary for transmitting any amount to non-residents and the said permission was not obtained till then the moneys could not be remit p=09 ted. So Shri Vashi learned counsel contends further that if that be so the once non-payment is excluded even specifically under section 207 under its proviso them it must be tagged and transplanted into the second provision of section 205A holding that if the payment was not permissible by operation of law then the further fact that the said amount was being treated as unpaid dividend was not required to be deposited in the unpaid dividend account since according to him the initial disqualification would continue till the end creating an umbrella of protection for the petitioner. In other words when there was no default at the initial stage there cannot be default at the consequential stage also. The alternate plank is that even assuming there was a default it could not be said as wilful as required by law especially when three of the directors are ordinarily residing abroad while the other two are not associated with the daily routine work. As a third count it was submitted that even assuming otherwise still on facts if properly construed there is no propriety of continuing the prosecution especially when the amounts have been deposited in full even prior to the lodging of the complaint. All these contentions are countered by Shri P M Vyas learned public prosecutor for the State. According to him even though there might be protection under the proviso of section 207 of the Act for not depositing the amount on account of statutory disqualification since the Reserve Bank's permis sion had not been obtained still the protection stops at that and the further consequence of non-depositing the said unpaid amount to the special account cannot be excused. It is also submitted that peti tioners Nos. 2 to 6 being directors would be presumed to have acted wilfully. It is therefore submitted that issuance of process is justified.
7. As regards the first count canvassed by Shri Vashi learned counsel the contention is wholly unsustainable. In that behalf the provisions of section 205A sub-section (1) and sub-section (8) and section 207 become relevant. Section 205A(1) reads as:
'205A(1) Where after the commencement of the Companies (Amendment) Act 1974 a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within forty-two days from the date of declaration to any shareholder entitled to the payment of the dividend the company shall within seven days from the date of expiry of the said period of forty-two days transfer the amount of dividend which remains unpaid or in relation to which no dividend warrant has been posted within the said period of forty-two days to a special account to be opened by the company in that behalf in any scheduled bank to be called Unpaid Dividend Account of......Company Limited/Company (Private) Limited'.
8. Sub-section (8) read as under:
'If a company fails to comply with any of the requirements of this section the company and every officer of the company who is in default shall be punishable with fine which may extend to five hundred rupees for every day during which the failure continues'.
9. Section 207 read as under:
'Where a dividend has been declared by a company but it has not been paid or the warrant in respect thereof has not been posted within forty-two days from the date of the declaration to any shareholder entitled to the payment of the dividend every director of the company; its managing agent or secretaries and treasures and where the managing agent is a firm or body corporate every partner in the firm and every p=09 director of the body corporate and where the secretaries and treasur ers are a firm every partner in the firm and where they are a body corporate every director thereof shall if he is knowingly a party to the default be punishable with simple imprisonment for a term which may extend to seven days and shall also be liable to fine.'
10. This provision has a proviso of which proviso (a) is quite relevant which can be reproduced as :
'Provided that no offence shall be deemed to have been committed within the meaning of the foregoing provision in the following cases namely:-
(a) where the dividend could not be paid by reason of the operation of any law'.
11. The scheme legislative intent and the object behind this enactment would be quite relevant in this field. The requirement of section 205A can be dissected into seven clauses. First there should be a declaration by the company of the dividend. Then there is a pre scribed mode of payment of the dividend first by actual payment and second by posting a warrant in respect thereof. The second ingredient suggests that the said amount is required to be paid or warrant to be despatched for which a fixed period of forty-two days from the date of declaration is stipulated. The third part indicates that this would apply vis-a-vis shareholders who are entitled to receive the said dividend. The fourth part indicates the consequence of not fulfilling this obligation within forty-two days where-upon a further obligation comes into play that within seven days after completion of the said period of forty-two days the company is enjoined to transfer the total amount of unpaid dividend to a special account to be opened by the company in that behalf in any scheduled bank with a label as 'Unpaid Dividend Account' of the company.
12. Sub-section (8) creates the default of not depositing the unpaid dividend amount in the special account as an offence prescribing certain punishment.
13. Correspondingly the provisions of section 207 are required to be analysed under which non-payment of the dividend by any of the said two modes after declaration of dividend to any shareholder entitled to the said dividend entails the commission of an offence for which certain punishment is prescribed thereunder. The proviso carves out that it could be a defence to this charge if the dividend could not be paid due to operation of any law.
14. It would therefore be proper in juxtaposition to read the provisions of section 207 and then to go to the provisions of section 205A. A composite reading of these two provisions makes it clear that once the dividend is declared and once it is shown that the shareholder is entitled to the said dividend then the company is enjoined to pay the said dividend to such shareholder within a period of forty-two days after declaration through either of the two prescribed modes of pay ment. If that is not done within the stipulated period then it be comes an offence for which punishment is prescribed. However the company or its officers concerned can legitimately raise a defence that they could not make the payment only because of the hurdle creat ed by operation of law and if they succeed in that behalf then the offence is wiped out. However whether it creates an offence or not by reason of such a defence as contemplated by section 207 of the Act still the basic fact remains intact that there is a primary obligation p=09 on the company to be responsible for making payment to a shareholder who is entitled to such payment within forty-two days after the decla ration is made. The obligation comes into play but its implementation may be deferred by reason of operation of law which may serve as a defence for the prospective offence. In effect therefore though the obligation is not wiped out still the legal disqualification is re moved and it is thereafter that the obligation becomes excusable.
15. However the defence as carved out under the proviso to section 207 as incompetence on the part of the company to make the payment due to some legal hurdle cannot be transplanted into the provisions of sec tion 205A to serve as a parallel defence for the consequence of non- payment. In other words it may be a good defence for non-payment to a shareholder entitled to payment but it is hardly a defence to the consequence which may ensue under section 205A under which the company is under an obligation to deposit all such amounts of unpaid dividend in a special account of the said company. The protection therefore for non-payment very much stops at that point of time inasmuch as if the payment cannot be made due to operation of law then no offence is made out under section 207 since the payment could not be made. However in spite of this protection which is for the limited purpose of non-payment to the shareholder the further consequence is not suspended much less wiped out. In other words even if the company is exempted from paying such amounts on account of operation of law still the said amount which remains unpaid will fall in the same category along with other amounts which remained unpaid to the shareholder entitled to the payment. The right of the shareholder to be entitled to the payment as also the obligation of the company to make payment to such shareholder both remain intact though the obligation to make immediate payment is suspended till the legal hurdle is wiped out. That does not affect is any manner the further obligation as stipulat ed under section 205A which comes into operation only after the non- payment and that too only after the period of forty-two days is over. It is thereafter that the company is enjoined to deposit the said unpaid amount in the special account as prescribed thereunder until the further formalities are observed. In other words therefore there is nothing in section 205A to support the claim that where dividend is remittable to a shareholder entitled to the said payment but cannot be made due to some legal hurdle or impediment as in the instant case it could not be done without the Reserve Bank's permission the company is exempted from the provisions of section 205A(1) in not depositing the said unpaid dividend amount in the unpaid dividend account of the company. The obligation cast within the span of forty-two days and the obligation that comes into existence after the said period of forty-two days is over and within seven days thereafter are distinct and the protection afforded under proviso to section 207 obviously cannot be engrafted to serve as a protection even for the second part of section 205A. This is also because the disqualification is for the payment of the amount to the shareholder entitled to the payment as in the instant case it could not be paid unless there is permission of Reserve Bank as the directors are non-residents and as stipulated by the Foreign Exchange Regulation Act. However this so called disquali fication merely suspends the payment to be made till the hurdle is removed and it is not as if that the protection of non-payment remains in force all throughout or even assuming otherwise it hardly makes any difference to the conclusion because non-payment to the shareholder does not serve as exemption for non-deposit of the said unpaid amount to the special account whereas the obligation to deposit the unpaid amount in the special account is independent of everything and comes into operation when the bare fact that the amount has not been paid or could not be paid within the stipulated period is established. Com p=09 pliance with the stipulations under section 205A(1) is necessary as per the scheme of the provisions contained in all the sub-sections of section 205A as the amount after a particular period has to be trans ferred to the general revenue account of the Central Government while the person to whom the amount is due can lodge his claim and get the amount. All these provisions form a complete unit with a specific purpose in the interest of all the parties concerned highlighting the object and utility of transferring such amounts of unpaid dividends. Therefore in effect it is not the reason for non-payment but it is the consequence of non-payment that brings into play the second part of section 205A casting an obligation on the part of the company to deposit the unpaid amount in a special account within the period of seven days after the said stipulated period of forty two days is over. This position is manifestly clear and admits of no doubts.
16. Examined on the facts of the instant case and on an analysis of these position is clear that the dividend was declared in February 1984 but it was actually paid on June 1,1984 while final dividend was declared on June 21,1984 but it was actually paid on January 22,1985. These amounts could not be paid till June 1984 and January 1985 respectively because till then the permission of the Reserve Bank under the provi sions of the Foreign Exchange Regulation Act was not obtained. Obvi ously that permission was granted some time in June 1984 in the matter of the first payment and prior to January 22,1985 in respect of second payment. It is accepted that both these payments have been made after the permission was granted by the Reserve Bank.It would therefore follow that as long as the permission was not granted the statutory hurdle was operating in the way of making payment to these petitioners by the company and therefore under the first proviso(a) to section 207 of the Act the company was fully protected and no offence could be made out. However as observed earlier the protection stops at that and the obligation came into effect immediately thereafter i.e. after the period of forty-two days after declaration was over under section 205A(1) under which the company ought to have deposited the said amount of unpaid dividend in the special account prescribed there- under. Admittedly the company has not done that within the stipulated period of seven days or for that matter at any time but directly paid to these three petitioners in June 1984 and January 1985.
17. In view of the discussion hereinabove on the basis of analysis of these provisions and in the context of the facts of the instant caseit is inescapable to hold that the company has failed to discharge the obligation as prescribed under the second part of section 205A sub- section (1).Once that is done then the provisions of sub-section (8) which create an offence for this lapse and prescribe punishment would obviously come into play and consequently normally the company and the concerned officers would make themselves liable for the penal conse quence.The first count will have to be held against the petitioners and the contention raised by Shri Vashi learned counsel in that behalf is negatived.
18. It would therefore obviously be necessary now to consider the second count canvassed by Shri Vashi learned counsel as to whether in spite of such a default the petitioners can be made liable as contemplated by the provisions of the Act. In that behalf some other provisions are required to be examined.
19. I have already indicated that sub-section (8) prescribes that if a company fails to comply with the provisions of section 205A(1) then it gives an indication as to which of the officers of the company would be held liable for punishment and for that purpose a specific termi p=09 nology has been used as 'the company and every officer of the company who is in default' who are made liable for punishment. It therefore follows that with some purport the Legislature has employed this term 'every officer of the company who is in default', and the prosecution must establish that petitioners Nos 2 to 6 squarely fall in this category. This however is an incomplete reading of the situation as it would be necessary to find out as to what was really intended by the Legislature in enacting this provision using this particular terminology embracing not 'every officer of the company' being made liable for punishment but restricting only to such officer of the company who is in default being made liable for punishment.
20. Section 5 of the Act furnishes the meaning of the term 'Officer who is in default' and it reads as:
'For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any pun ishment or penalty whether by way of imprisonment fine or otherwise the expression 'officer who is in default' means any officer of the company who is knowingly guilty of the default non-compliance failure refusal or contravention mentioned in that provision or who knowingly and wilfully authorises or permits such default non-compliance failure refusal or contravention.'
21. Even this remains incomplete unless the meaning of the term 'officer' simpliciter is properly followed which finds incorporated in sub- section (30) of section 2 of the Act which defines 'officer' as:
' 'officer' includes any director managing agent secretaries and treasurers manager or secretary or any person in accordance with whose directions or instructions the board of directors or any one or more of the directors is or are accustomed to act and also includes-
(a) where the managing agent or the secretaries and treasurers is or are a firm any partner in the firm
(b) where the managing agent or the secretaries and treasurers is or are a body corporate any director or manager of the body corporate...'
22. On a composite reading of section 2 sub-section(30) section 5 and sub- section (8) of section 205A a harmonious conclusion flows out of the same. Firstly there must be a default as contemplated by section 205A sub-clause (1) either in not depositing the said amount in the special account. Though there is a default it is not that every officer who would be made liable but only such officers who are deemed to be in default as contemplated by section 5 only would be made liable. The term 'officer in default' cannot be complete unless the provisions of section 2(30) and section 5 are read together or otherwise it would be a truncated form.
23. A harmonious reading of these three provisions therefore would proper ly prescribe the following:
'If a company fails to comply with any of the requirements of section 205A the company or any director, managing agent, secretaries, treas urers, manager or secretary or any person in accordance with whose directions or instructions the board of directors or any one or more of the directors is or are accustomed to act including where the managing agent is a firm then any partner of that firm or where the managing agent is a body corporate then manager or agent of body corporate and who is knowingly guilty of non-compliance failure or p=09 refusal or contravention mentioned in that provision or who knowingly and wilfully authorises or permits such default non-compliance failure refusal or contravention would be liable for punishment with fine which may extend to 500 rupees for every day during which the failure commenced.'
24. It would therefore be manifest from this composite definition emerging out of those provisions that it is not every officer of the company who will be liable but that officer must be an officer in default and for that purpose he must have been guilty of that default knowingly or he must have authorised the said default knowingly or wilfully. It is true that in the first part wilful default is not contemplated but nonetheless the person must be knowingly guilty of the said default, contravention or non-compliance and in respect of authorising the act then it must be not only knowingly but also wilfully.
25. Applying this composite definition to the case Shri Vashi learned counsel contends that respondents Nos. 2 to 6 by merely being the directors of the company cannot be presumed to have been knowingly guilty or have knowingly and wilfully authorised the said default. This is to counter the contention of Shri Vyas learned public prosecu tor that their mere capacity as directors would make them knowingly guilty or also make them knowingly or wilfully authorise the said default or contravention. I am afraid such a specious interpretation as sought to be placed by Shri Vyas is difficult to uphold. Obviously the Legislature did not want every officer to be tagged in this cate gory to suffer the penal consequence but such officer is to be supple mented by the knowledge or also with intention. Consequently there fore the element of mens rea is obviously sought to be introduced through this provision for the purpose of formulation of an offence. In other words the prosecution must establish though not necessarily be direct evidence but at least inferentially supported by enough material that the default has been done knowingly or the default has been authorised knowingly or wilfully. In other words the bare fact of default or contravention does not make an officer of the company suffer penal consequence but to incur that disqualification he must have knowledge and that for the second part he must also have the intention. This would be in contrast with the other provisions under the Act itself or under other laws such as the Customs Act the Preven tion of Food Adulteration Act etc. where in respect of some offences there is no further qualification but an officer of the company or partner of the firm by reason of his capacity in that behalf is made liable. Consequently user of this terminology is obviously with some purpose. Significantly there is not even a whisper in the complaint either about the knowledge much less about the intention. This is practically conceded on behalf of the prosecution. It is not even suggested that by reason of their being directors the consequences must follow. As stated, petitioners Nos 3,4 and 5 are ordinarily residing abroad and they rarely come to India to attend some of the meetings while petitioners Nos 2 and 6 say that they were not con cerned with the day-to-day affairs of the company and that they had no knowledge of the case. under the circumtances knowledge cannot be imputed to these directors much less any intention. As stated at the threshold the peculiar feature is that petitioners Nos. 3, 4 and 5 are themselves recipients of the dividend and they being abroad their counterpart in the company having not deposited the said amount to the special account cannot be tagged to that as a wilful default or a default committed knowingly. As stated there is absolutely no evi dence worth the name which is sought to be produced by the prosecution nor is there anything in the complaint even to inferentially suggest application of these provisions of the Act vis-a-vis petitioners No. 2 p=09 to 6. In the absence of any such material and in the event of the glaring features which are indicated earlier the vital ingredients of the offence are blissfully missing. Consequently notwithstanding that there has been a default by the company in not depositing the said amount in a special account petitioners Nos. 2 to 6 cannot be made liable for the same. The case of the company of course may stand on a different footing. Shri Vashi learned counsel also contended that the company and the concerned officers bona fide believed that as per their interpretation of section 205A(1) read with section 207 along with proviso (a) once they were protected by that proviso from not incurring any penal liability for non-payment of the amount as they could not do the same in the absence of the permission from the Re serve Bank they were also excused or exempted from depositing the same in the special account and this is fortified as they obtained legal opinion in that behalf. He has also brought to my notice the corre spondence exchanged between the parties and the consistent replies given by the company to show-cause notices and other queries made by the complainant that it is mainly because of the absence of permission from the Reserve Bank that they not only could not pay but also they felt honestly that it was not necessary to deposit the amount in the special account and but for which advice perhaps they would have acted otherwise. Since however the material on this crucial aspect not only about the element of mens rea but also about these petitioners being knowingly associated with the said default being wholly non-existent on this point alone the petitioners deserve to be exonerated. this further plank in the argument of Shri Vashi learned counsel for the absence of mens rea and acting in good faith need not detain us.
26. All said and done and even otherwise the facts are so peculiar that there is no propriety in allowing this proceeding to continue. In that behalf as I have already indicated at the threshold three of the petitioners are normally resident abroad and they are non-residents. They themselves are recipients being entitled to dividend as share holders as they were representing the parent company on the board of directors of the company and the amounts have been fully paid on June 1, 1984 and on January 22, 1985. In spite of that, we find that it is an admitted position that the complaint was filed on June 27, 1985. This would therefore mean that the complaint was filed even after full payment was made to these petitioners by the company after obtaining the permission of the Reserve Bank of India. The delay can be justi fied as the permission was not granted till then. These three peti tioners rarely come to India as they are ordinarily residing in the United States and the United Kingdom. There is no charm in compelling these people to fact trial in India in view of all these features.
27. Having regard to the totality of all the circumstances in the proper perspective I have no reservation in holding that on the ground of properiety also this prosecution should not be encouraged much less allowed to be continued which exercise would be sheer waste of public money and time and energy and may even be an abuse of the process of law. It is better if the court's precious time is saved to attend to better proceedings than the one at hand. Prolonging the agonies of the petitioners under these circumstances would be thoroughly unjusti fied. Even the complainant should have considered the propriety of lodging the complaint even after the payment was remitted in full. Any way it is a past event while at present and for the future the same can be rectified by not continuing the proceeding.
28. Unfortunately the learned Magistrate did not consider any of these facts and almost mechanically issued process. It is true that the inherent jurisdiction should not be lightly exercised to quash the p=09 proceeding. However when even ex facie it appears to be manifestly clear and even desirable on the ground of propriety not to continue the proceeding then this court on the ratio of R P Kapur v State of Punjab : 1960CriLJ1239 State of Karnataka v L Muniswamy : 1977CriLJ1125 and Trilok Singh v Satya Deo Tripathi : 1980CriLJ822 would be entitled to step in the interest of justice to quash the proceeding for otherwise expressing inability and merely assuming the character of a spectator would really be against the interest of justice. Under the circumstances I am satisfied that this is a fit case to exercise such discretion in favour of quashing the proceeding.
29. Rule made absolute.
30. The impugned order recorded by the learned Additional Chief Metropoli tan Magistrate, Third Court Esplanade Bombay issuing process under section 205A(8) for contravention of the provisions of section 205A(1) of the Companies Act on the basis of the complaint filed by the Addi tional Registrar of Companies Maharashtra in Criminal Case No. 1301/RC of 1985 is set aside and the said proceedings are quashed and the said complaint stands dismissed.